Ottawa has tapped Canada’s financial consumer watchdog to oversee the country’s proposed open banking regime.
The Financial Consumer Agency of Canada (FCAC) will be tasked with administering and enforcing open banking legislation – dubbed “consumer-driven banking” – the Liberal government announced in Tuesday’s budget. The appointment of a regulatory body and framework has been long awaited by the financial industry as the process has bumped up against delays in recent years.
Open banking is a term for a new set of rules that would enable financial institutions to – at the request of their customers – exchange information more efficiently and securely. The regime would give consumers more control over how they share their financial data, making it easier to switch banks.
“A meaningful open banking system puts Canadians – not their bank – in control of their financial data and can make life more affordable,” Wealthsimple vice-president of payments strategy and chief compliance officer Hanna Zaidi said in a statement. “The update in today’s budget is welcome and we hope it is fully implemented soon so that Canadians can reap the benefits.”
What is open banking? Federal budget outlines new framework towards legislation in Canada
The budget allocates $1-million over the next year for the FCAC – which protects the rights of consumers of financial products and services and oversees federally regulated financial institutions – to adopt its new responsibilities and launch a consumer awareness campaign to educate Canadians on the purpose of open banking.
The change will expand the FCAC’s mandate to allow it to oversee personal financial data security and integrity. The government intends to table the framework legislation “soon,” it said in the budget.
The government is also providing $4.1-million over the next three years for the Department of Finance to conduct policy work to establish a consumer-driven banking oversight entity and framework, including the implementation of a national security regime.
Council of Canadian Innovators president Benjamin Bergen said that the government took a step in the right direction on its implementation of open banking, but the success of the regime will depend on how the framework is executed moving forward.
“We would like to see more of a timeline flushed out,” Mr. Bergen said in an interview. “This government has been particularly slow on its execution and delayed things.”
The decision about which body would enforce open banking has been contentious among industry players. Ottawa has opted for a government-led entity to oversee the system, leaving out involvement from the sector’s large lenders.
Canada is following other countries that have already implemented open banking systems. Britain began introducing open banking in 2017 and Australia launched it in 2019, and both countries chose government-led entities. Last fall, the U.S. Consumer Financial Protection Bureau introduced its own proposed rules.
The launch of the consumer-driven banking framework comes alongside further updates on how Ottawa plans to crack down on banking costs for consumers.
“While Canadians face a rising cost of living, bank profits have continued to grow – in part due to Canadians paying higher fees,” the federal government said in the budget. “Some banks have even recently increased the minimum balance required to waive monthly fees, making it even harder for people to keep their banking fees low.”
The federal government plans to cap non-sufficient funds fees charged by banks at $10, a significant drop from the approximately $50 that lenders currently charge when a customer does not have enough money in a bank account to cover a withdrawal or payment.
Banks could also be required to notify customers when they are about to be charged an NSF fee, and provide a grace period to cover the funds, in addition to other new restrictions.
In addition, the FCAC is negotiating enhanced agreements with banks to update their low-cost bank accounts, including expanding eligibility.
The Liberal government also followed up on its promise last year to designate the Ombudsman for Banking Services and Investments as the single external complaints body to help resolve customer issues.
As risks to the financial system mount, the federal government has been expanding the authority of Canada’s banking regulator to oversee a broader range of threats.
Ottawa proposed providing the Office of the Superintendent of Financial Institutions with greater cash flow. The change would increase the maximum amount that may be sent to OSFI at any one time to $100-million, up from $40-million.
The Canadian Bankers Association said that it is reviewing the proposals in the budget.
“Banks in Canada support measures that help build a strong and sustainable Canadian economy and support banks in helping customers and small businesses with their banking,” said Maggie Cheung, a spokesperson for the CBA.
Finance Minister Chrystia Freeland's latest budget projects spending of $535 billion this year, with a deficit of $39.8 billion. She says the spending plan is aimed at creating generational fairness, which will be funded, in part, by changes to capital gains taxes. (April 16, 2024)
The Canadian Press